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Growing Disquiet At Government’s Draft NFP Tax Legislation

Specialist Not for Profit legal service, PilchConnect and Melbourne University’s Law School have joined the growing disquiet about the Federal Government’s draft tax legislation for Not for Profits and they have called for the legislation to be delayed.

Specialist Not for Profit legal service, PilchConnect and Melbourne University’s Law School have joined the growing disquiet about the Federal Government’s draft tax legislation for Not for Profits and they have called for the legislation to be delayed.

In July 2011, the Assistant Treasurer released for public consultation an exposure draft of legislation to restate the 'in Australia' special conditions for tax concession entities.

PilchConnect says its submission is particularly concerned with the impact that the draft legislation may have on small Not for Profit organisations.

PilchConnect says it also supports the submission prepared by the University of Melbourne Law School's Not for Profit Project.

Last week accounting firm, Moore Stephens said the new draft tax legislation put additional harsh restrictions on all Not for Profits.

Moore Stephens has written a submission responding to the draft legislation regarding the “In Australia” requirement for Not for Profits, saying new restrictions had snuck into the changes.

O’Flynn says while Treasury indicated that they were not wedded to the ‘In Australia” requirement but there would have to be strong grounds for change.

PilchConnect says it is particularly concerned that the Treasury has not provided a sufficient explanation or justification for what will be the wide-reaching implications of the Exposure Draft should it be enacted in its current form.

PilchConnect has endorsed the recommendations put forward by Melbourne University in its submission, and strongly urged the Treasury to delay the introduction of proposed legislation while the issues raised submission can be resolved and further explained to the sector.

In particular, PilchConnect has urged the Government not to proceed with the introduction of a new definition of ‘Not for Profit entity' and not to proceed with proposed s 50-50(3) (requirement to operate consistently with rules and purposes) or the repeal of s 50-75 (regarding gifts and government grants).

The University of Melbourne Law School’s Not for Profit Project is a three-year research project funded by the Australian Research Council which began in 2010.

This project is described as the first comprehensive Australian analysis of the legal definition, taxation, and regulation of NFP organisations (NFPs).

The Melbourne University Submission says it is deeply concerned that, although the Explanatory Material conveys the impression that the Exposure Draft largely ‘standardises’, ‘restates’ and ‘codifies’ existing requirements, in fact the Exposure Draft makes potentially far-reaching changes to current legal requirements.

The Submission says these changes will have significant adverse and, in many cases, apparently unintended, consequences on the NFP sector.

It says the concern is that, due to this misleading impression and the complexity and technical detail involved, many Not for Profit organisations may be unaware of the significance of the possible consequences of this reform.

The submission says it recognises that the Government has already adopted a policy position to restrict tax benefits on a geographical basis, however, it express reservations concerning the adequacy of the underlying justifications for these measures.

In particular, it asks whether these measures can be justified in a globalised era, where institutions are increasingly enmeshed in international networks and where concepts of ‘public benefit’ are no longer territorially bound.

It says no evidence of systemic avoidance issues has been presented to justify these new measures and it regrets that the tax reforms continue to be developed in isolation from the broader regulatory reform which will inevitably be introduced by the new Australian Charities and Not-for-Profits Commission (ACNC).

PilchConnect's submission, and the detailed submission prepared by Melbourne University, are available at:

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